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December 31, 2009

Goldman Sachs Executives Sued by Pension Fund Over Bonuses

A shareholder derivative complaint filed by Security Police and Fire Professionals of America Retirement Fund and Judith A. Miller Living Trust is accusing Goldman Sachs Group Inc. executives of breaching their fiduciary duties for failing to modify the investment firm’s compensation policies according to the best interests of shareholders.

Goldman’s usual policy is to place 44-48% of its net revenue in employee compensation, which includes bonuses. The plaintiffs say these breaches were even greater this year because of federal funding that the investment bank received in 2008 and 2009. According to the complaint, this means that although the firm's revenues are not related to employee performance, Goldman executives are still being rewarded for corporate performance.

Goldman Sachs is expected to pay its employees about $22 billion (including bonuses) this year. Now, the plaintiffs are seeking to recover billions of dollars in compensation.

Goldman Sachs was the recipient of a $10 billion TARP loan. Pension fund officials claim the investment firm’s revenue for the year can largely be attributed to taxpayer money. In 2008, Goldman generated $29 billion in cash by issuing debts that the Federal Deposit Insurance Company had insured. It then obtained money from contractual counterparties that got their assets from taxpayers.

Meantime, Goldman Sachs says the claim is without merit. Earlier this month, the investment firm announced that its 30 most senior executives would receive their bonuses in the form of restricted stock instead of cash.

Goldman Sachs CEO Lloyd Blankfein is one of the executives named as defendants in the lawsuit.

Related Web Resources:
Read the Shareholder Derivative Complaint (PDF)

Pension fund sues Goldman over executive pay, Pensions and Investments, December 15, 2009

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December 18, 2009

Citigroup, J.P Morgan Chase, Morgan Stanley and Other Firms Added to Investigation of Goldman Sachs over "Front-Running" of Research

The Financial Industry Regulatory Authority ( FINRA) has launched an investigation into improper trading in advance of stock research and ratings at Citigroup, J.P. Morgan Chase, Morgan Stanley and ten other financial firms, it was reported today by the Wall Street Journal and Reuters News Service.

FINRA - formerly the National Association of Securities Dealers (NASD) – has since August examined weekly meetings at Goldman Sachs where research analysts offer tips to traders and then to big clients. According to the Wall Street Journal, this examination has now been expanded to include ten other firms and FINRA is now seeking information concerning any meetings where unpublished research opinions or trading ideas were disclosed to non-research employees or clients.

"FINRA does not reveal names of firms that have received sweep letters," said its spokesman Herb Perone to Reuters. Citigroup, JPMorgan and Morgan Stanley could reportedly not be reached immediately for comment.

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Posted In: Citigroup , Goldman Sachs , J P Morgan - Chase , Morgan Stanley

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August 31, 2009

In Investment fraud Lawsuit Against Lehman Brothers, Goldman Sachs and Morgan Stanley, Court Grants Class Certification

A District Court judge has granted class certification in the securities fraud lawsuit against Lehman Brothers, Morgan Stanley, and Goldman Sachs. The plaintiffs are accusing the broker-dealers of putting forth misleading analysts reports about RSL Communications Inc. for the purposes of maintaining or obtaining profitable financial and advisory work from RSL. Per Judge Shira Sheindlin, the class is to be made up of all parties that bought RSL Common stock between April 30, 1999 and December 29, 2000.

RSL investors, who are the plaintiffs, contend that the defendants artificially inflated the market price of RSL common stock, which injured them and other class members.

In July 2005, the court had certified a class that included anyone who had bought or acquired RSL equity shares between the dates noted above after determining that the plaintiffs had made “some showing” that Rule 23 requirements had been satisfied. The broker-dealer defendants appealed.

The US Court of Appeals for the Second Circuit vacated the class certification order and remanded the action for reconsideration. It’s decision in e Initial Public Offering Securities Litigation, 471 F.3d 24 had clarified class certification standards.

Two years later, pending the outcome In re Salomon Analyst Metromedia Litigation, the court issued a stay. Following its opinion, which held that market presumption includes securities fraud allegations against research analysts, the Court lifted the stay, allowing the plaintiffs to renew their motion for class certification. The court granted the motion and noted that the defendants have been unable to “rebut the fraud on the market presumption by the preponderance of the evidence on the basis that the analyst reports” are missing certain key pieces of information. Per their securities fraud claim, plaintiffs can therefore avail of the “fraud on the market presumption to establish transaction causation.”

The court said that the plaintiffs have succeeded in proving that loss causation can be proven on a “class-wide basis."

Related Web Resources:
Court OKs Class Cert. In Fraud Suit Against Lehman, Law360, August 5, 2009

U.S. District Court for the Southern District of New York (PDF)

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May 17, 2009

Goldman Sachs Reaches $60 Million Settlement with Massachusetts Over Subprime-Mortgage Loans

Massachusetts Attorney General Martha Coakley has announced a $60 million settlement with Goldman Sachs over the alleged role the investment bank played in the subprime mortgage crisis. While Goldman did not originate the loans, it played a role in their securitization. Coakley has been conducting a nationwide probe targeting investment banks that knew certain loans were high risk but still opted to write them, as well as underwrite securities from these loans. Coakley says that state courts are in agreement that a number of these loans were destined to fail from the start.

Massachusetts will use $50 million of the settlement to help 714 Massachusetts homeowners with mortgages that are either delinquent or still performing. The money, however, won’t go toward helping homeowners whose homes have already foreclosed. The other $10 million will go to the state.

Among the terms of the settlement:

• Goldman has consented to principal write-downs of 25% to 30% for first mortgages and upward of 50% for second mortgages if owners want to sell or refinance their homes.

• A homeowner who is significantly delinquent will have to make manageable payments toward mortgages until they are able to sell or refinance.

• If a homeowner cannot sell his or her home, Goldman will help qualified borrowers to refinance and provide other solutions so that they don’t have to foreclose.

• Homeowners that have loans with Goldman entities and those that Litton Loan Servicing LP has serviced will receive immediate help.

By agreeing to the settlement, Goldman is not admitting to or denying wrongdoing. This is the first settlement, however, where an investment bank has been held to task for its role in the subprime lending crisis. Up until this point, prosecutors were only targeting the sources of the subprime loans and not the parties that put together the loans and presented them to investors.

Related Web Resources:
Massachusetts settles with Goldman Sachs, UPI, May 11, 2009

Goldman Sachs, Massachusetts reach settlement on mortgage securities, LA Times, May 12, 2009

Attorney General Martha Coakley

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February 26, 2009

Bank of America, Citigroup, Goldman Sachs, and Wells Fargo Chief Executives Among Those Defending Bailout Fund Use

Earlier this month, the chief executives of the eight biggest banks in the United States, including Citigroup, Bank of America, Wells Fargo, and Goldman Sachs addressed the House Financial Services Committee in an attempt to persuade US lawmakers that billions of dollars in bailout funds were used as intended—to increase consumer and business lending and improve balance sheets. The banking heads also admitted to certain mistakes and promised that compensation in the future would be commensurate with performance.

Under the Capital Purchase Program, the federal government gave the banks $125 billion in cash infusions in November. Bank of America and Citigroup also received $20 billion each in Treasury investments.

At the session, some of the bank executives gave testimony regarding activities performed since they received the government’s financial assistance. For example, Kenneth Lewis, Bank of America’s chief executive, says that during 2008’s fourth quarter, the bank committed to $115 billion in new loans.

Vikram Pandit, Citigroup’s chief executive, said his bank had provided $75 billion in new loans for the fourth quarter. He also said that Citigroup had used $36.5 billion to expand personal loans, mortgages, and credit lines for businesses, families, and individuals, as well as to create secondary market liquidity. He said Citigroup had cancelled an order for a $50 million jet.

While the executives were contrite, Committee Chairman Barney Frank criticized them for giving executives bonuses, in addition to salaries. Lawmakers also asked the banks’ executives to stop home foreclosures until the Obama Administration can executive a $50 billion plan on mortgage modifications and other assistance for borrowers that are experiencing problems.

John Stumpf, Wells Fargo's chief executive, said that his bank could hold off on foreclosing on loans in which it is the investor or owner. Pandit said Citigroup could support a moratorium for borrowers that live on properties facing foreclosure. Lewis said Bank of America could place a moratorium on home foreclosure for two or three weeks.

Related Web Resources:
Foreclosures halt by Bank of America, Citigroup, JPMorgan, Wells Fargo, UB-News.com, February 14, 2009

Fed Urges Banks to Put Bailout Funds Into Loans, Not Dividends, Bloomberg.com, February 24, 2009

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Posted In: Bank of America , Citigroup , Financial Firms , Goldman Sachs , Wells Fargo

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November 19, 2008

NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities

The North American Securities Administrators Association is reminding investors to ask the investment firms that sold them any now-frozen auction-rate securities about repurchase opportunities. Following the ARS market collapse, securities regulators in 12 US states joined together to form a multi-state Task Force dedicated to finding out whether Wall Street investment firms had misled investors when persuading them to invest in the ARS market.

As part of their settlement agreements reached with the firms in question, 11 major Wall Street investment banks have said they will buy back over $51 billion in ARS from charities, retail investors, and small companies. However, these repurchase offers may not be available indefinitely.

NASAA President Fred Joseph says the best way to avail of any redemption offers is to contact the investment firms as soon as possible. So far, 11 firms have agreed in principle to buy back over $50 billion in ARS. NASAA says additional repurchase opportunities are expected to become available in the coming months.

Investment Firms with ARS Hotlines:

Bank of America 1-866-638-4183
Deutsche Bank 1-866-926-1437
Citi 1-866-720-4802
JP Morgan 1-866-450-8470
Goldman Sachs 1-888-350-2857
Merrill Lynch 1-888-706-1381
UBS 1-800-253-1974
Morgan Stanley 1-800-566-2273
Wachovia 1-866-283-794

Meantime, more investigations are under way into the sales practices of US firms that marketed and sold auction-rate securities to investors. Unfortunately, many investors who were told ARS were liquid investments are now dealing with frozen securities and cannot access their funds.

If you invested in the auction-rate securities industry and your ARS became frozen during the market’s collapse, you may be the victim of securities fraud.

Related Web Resources:
State Securities Regulators Remind Auction Rate Securities Investors to Contact Firms About Buyback Offers, NASAA, November 17, 2008

Small firms caught in ARS buyback vise, November 16, 2008

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Posted In: Auction-Rate Securities , Bank of America , Citigroup , Deutsche Bank , Financial Firms , Goldman Sachs , J P Morgan - Chase , Merrill Lynch , Morgan Stanley , NASAA , UBS , Wachovia

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October 15, 2008

Goldman Sachs Applies for New York Bank Charter

Goldman Sachs is applying for a New York bank charter. The application is one of the steps the New York-based investment bank is making in its move to become a commercial bank.

Goldman’s competitors, Bank of America, Citigroup, Morgan Stanley, and JP Morgan Chase are banks that have a national charter, which allows banks to open branches in different states without needing to apply for separate charters in each state. Having a New York charter, however, will not prevent Goldman Sachs from opening branches outside the state.

Goldman’s move to obtain a state charter is a sign that the company may not want a consumer-oriented business that operates on a national level. Rather than focusing on retail banking services, the firm will likely concentrate on managing rich people's assets.

New York Superintendent of Banks Richard H. Neiman says Goldman’s application affirms that both the state and national banking systems are “alive and well.” Meantime, New York Governor David Peterson said Goldman’s decision reflected the state’s ability to “effectively regulate” banks.

In regards to Goldman’s state bank charter application, Stockbroker Fraud Attorney William Shepherd, who is the founder of securities fraud law firm Shepherd Smith Edwards and Kantas, LLP had this to say:

“Isn't it interesting that Goldman Sachs decided to become a bank after the bailout plan was passed, but—apparently—does not intend to become a "real" bank. Isn't it also interesting that the bailout plan was just changed to provide capital to "banks.”

It is curious that the handful of banks selected to receive taxpayer funds includes Goldman Sachs. Finally, is it any coincidence that the mastermind of the bailout plan is "Hank" Paulson, former chief of Goldman Sachs? Oh, I failed to mention that the person chosen by Paulson to oversee the bailout plan is a former vice president of … none other than Goldman Sachs.”

Goldman Sachs Seeks New York Bank Charter, New York Times, October 13, 2008

Goldman applies for N.Y. charter, Money.CNN.com, October 14, 2008

Related Web Resource:

Goldman Sachs

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July 21, 2008

SEC Subpoenas Over 50 Hedge Fund Advisors in Probe of Whether Stock Price Manipulation Affected Bear Stearns and Lehman Brothers Shares

The Securities and Exchange Commission has subpoenaed over 50 hedge fund advisors, including SAC Capital Advisors, Goldman Sachs Group Inc., and Citadel Investment Group, as part of its probe into whether rumors affected the shares of Bear Stearns and Lehman Brothers.

The SEC is looking for information related to options trading and short-selling involving the two investment firms. The subpoenas are part of a wider investigation about trades in bank securities and the communications between the hedge funds and others. The SEC has reassured the parties being subpoenaed that they are not necessarily direct targets of the probe.

Last week, regulators announced that they are investigating whether certain managers had spread rumors to cause share prices to drop. Investigators are also trying to figure out whether correct policies and training procedures had been put in place to detect market manipulation.

The NYSE Euronext’s regulatory arm and the Financial Industry Regulatory Authority are also working together to find out about the compliance polices of certain large securities firms related to rumors and false information. The companies are being asked whether they executed internal probes about the rumors related to the sub-prime loan business, a potential federal government bailout affecting several financial institutions, and the use of the Federal reserve discount window.

As a result of the subpoenas, broker-dealers and hedge funds are rushing to provide regulators with trading records and e-mails.

If you believe that you are a victim of securities fraud, please contact Shepherd Smith Edwards and Kantas, LLP for your free consultation with one of our experienced stockbroker fraud lawyers today.

Related Web Resources:

Firms hurry to comply with SEC subpoenas, Boston.com, July 17, 2008

SEC Issues Subpoenas in Banking Probe, TheStreet.com, July 16, 2008

US Securities and Exchange Commission

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Posted In: Bear Stearns , Financial Firms , Goldman Sachs , Lehman Brothers

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March 19, 2008

Wachovia Securities Analyst Comments on Bear Stearns’ Sale and Calls Merrill Lynch the “Riskiest” Investment Bank

In a note to investors, Wachovia Securities Analyst Doug Sipkin commented on the state of the leading Wall Street securities firms in light of the worsening global credit crisis.

Sipkin blamed the “The failure of Bear Stearns” on a “management issue” rather than a “market issue.” JP Morgan Chase & Co. recently purchased Bear Stearns, the fifth largest securities company, for $236 million—that’s $2/share—a 90% market drop in just two days. The securities firm ran out of money after clients took away funds.

Sipkin, however, reassured investors that the action taken by the Federal Reserve to reduce emergency lending rates will keep the other four big securities firms in business.

The Wachovia analyst says that worries about Lehman Brothers are misguided and that the bank has sufficient liquidity to keep business running. Sipkin cited Lehman’s “superior management” and “superior business.”

Lehman and Goldman Sachs are expected to garner new business from the Bear sale. Sipkin said Goldman will likely benefit from “migrating prime brokerage balances,” while Lehman would likely pick up “material market share" in mortgages.

Morgan Stanley, said Sipkin, seems to be weathering the crisis because it has its asset management and brokerage businesses.

Sipkin pointed to Merrill Lynch as appearing to be the weakest of the top Wall Street firms—but said that it would also likely stay afloat, considering that its balance sheet had the highest leverage.

Related Web Resources:

Ahead of the Bell: Investment Banks, Chron.com/AP, March 18, 2008

US stock market drops as Bear Stearns sold for $2/share, Reuters, March 17, 2008

JP Morgan Shares to Acquire Bear Stearns, Bear Stearns

If you have been the victim of investor fraud, you are entitled to the recovery of your lost investment. Contact Shepherd Smith and Edwards today to schedule your free consultation with one of our stockbroker fraud lawyers.

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Posted In: Bear Stearns , Goldman Sachs , J P Morgan - Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley

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February 15, 2008

Goldman Sachs, Merrill Lynch, Lehman Brothers, and Other Investment Firms Deal with Frozen Auction-Rate Securities

This week, Goldman Sachs told a number of investors that they could not withdraw money from their auction-rate securities investments. This move by Goldman came as a shock to investors—but the firm was not alone. Merrill Lynch, Lehman Brothers, and other banks have also found themselves notifying their investors that the market for these types of securities are frozen—along with their money. Just this week, there were nearly 1,000 failed auctions. The banks are now refusing to support the auctions and many investors are not sure when they’ll recover their investments.

Usually, auction-rate securities are considered safe alternatives to cash—and banks frequently recommend these bonds, considered long-term securities—to rich individuals and corporations. Banks regularly hold auctions to establish the interest rates and give holders an opportunity to sell their securities.

Auction-Rate Securities
The auction-rate market is valued at $330 billion. Tax-exempt institutions, including municipalities, student loan companies, closed-end mutual funds are among those who participate in the market.

Just because there is a failed auction does not mean the securities have defaulted. Issuers are allowed to pay interest at the “fail rate,” which is the higher rate.

Investors are not happy with the frozen state of the auction-rate securities market. Brokerage firms are not legally bound to make a market in auction securities or provide clients with a price.

One wealthy investors said he bought the securities after Goldman likened them to the equivalent of cash. Another investor, a New Jersey family, is suing Lehman Brothers because the value of its cash in auction-rate securities is decreasing. Drug manufacturer Bristol-Myers Squibb has already had to write-off the $275 million it invested in auction--rate securities because of the failed auctions.

These investments were often compared to money market funds. Many investors were told there was little or no risk in these investments, even after reports surfaced which indicated danger of owning such securities. Some financial firms reportedly encouraged individual investors to purchase these securities as they worked to reduce their own exposure and that of their large institutional clients.

Shepherd, Smith, & Edwards is a stockbroker fraud law firm that represents investors that wish to recover money they have lost because of the misconduct or negligence of an investment adviser, broker, or firm. One of our investment fraud lawyers would be happy to speak with you during a free consultation.

Related Web Resources:

New Trouble in Auction-Rate Securities, New York Times, February 15, 2008

Muni Regulators Seek Disclosure on Auction-Rate Bonds, Bloomberg.com, February 15, 2008

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February 13, 2008

Goldman Sachs Settles Enron Fraud Lawsuit with University of California for $11.5 Million

Goldman Sachs & Co. says it will settle a class action suit filed by the University of California (UC) over the purchase of Enron Corp. securities for $11.5 million. The University of California Board of Regents has approved the terms of the settlement.

Goldman allegedly marketed Enron 7% exchangeable notes via a registration statement that was false and misleading—this is a violation of the 1933 Securities Act.

UC says that it has so far received over $7.4 billion in settlements for Enron investors, including:

JP Morgan Chase: $2.2 billion
Canadian Imperial Bank of Commerce: $2.4 billion
Citigroup: $2 billion
Bank of America: $69 million
Lehman Brothers: $222.5 million
Andersen Worldwide: $33 million
Kirkland & Ellis LLP: $10.2 million
Arthur Anderson LLP: $72.5 million
Enron’s outside directors: $168 million

Barclays Bank, Merrill Lynch, Credit Suisse First Boston, Royal Bank of Scotland, Royal Bank of Canada, Toronto-Dominion Bank, and several ex-Enron officials have also been named as defendants by UC. The class involves some 1.5 million Enron stock and bond buyers whose losses due to the alleged fraud run over $40 billion.

Last month, U.S. Supreme Court refused to review the decision by an appeals court that blocks securities fraud claims made by Enron shareholders to recover damages from three large investment banks that allegedly helped Enron cover up its losses.

As an investor you have a right to get your money back if you have been the victim of investor fraud. Contact Shepherd Smith and Edwards today and ask for your free consultation with one of our experienced stockbroker fraud lawyers.

Related Web Resources:

Goldman Sachs settles with UC, Daily Bruin, February 9, 2008

Enron Securities Fraud Lawsuit, University of California

Goldman Sachs

The Rise and Fall of Enron, New York Times

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February 11, 2008

Pondering the SEC’s Role in the Subprime Mortgage Crisis

What was the role of the Securities and Exchange Commission in the collapse of the subprime mortgage bubble? Although mortgage brokers, investment banks, and ratings agencies are frequently held responsible for the demise, little is said about the roles of the Financial Industry Regulatory Industry (FINRA) and the SEC—both watchdog agencies that are responsible for monitoring complex credit derivatives and their suitability requirements for investors.

Yet where was the SEC when it was time to oversee investment banks and determine whether they had sufficient capital for their balance sheets, trading positions, and the appropriate risk management systems so that major losses could be avoided?

One notable problem is that there is not enough clear data available about the credit derivatives market. Structured finance products, including collateralized debt obligations (CDOs) are traded over-the-counter in the United States. This means that price information for these products is not easily accessible.

It wasn’t until 2007 that the SEC, the Commodities Futures Trading Commission (CFTC), and other members of the President’s Working Group recommended that stricter oversight of the over-the-counter market be implemented.

While regulators are now examining the way banks structured, priced, and sold mortgage-laden securities, some industry insiders feel that these steps were taken too late. Should the SEC have noticed the warning signs?

In 2006, Merrill Lynch senior executive Jeff Kronthal was fired when he responded reluctantly to former Chief Executive Stanley O’Neal’s mandate that firms be more aggressive about taking risks with mortgage securities. Morgan Stanley’s new Chief Executive John Thain rehired Kronthal last December.

In 2005, Bear Stearns reported in its 2005 financial disclosure that it was threatened by a possible civil enforcement action related to pricing, analysis, and valuation of $63 billion in CDOs. Bear Stearns also reported that then-New York Attorney General Eliot Spitzer had contacted the firm about $16 billion in CDOs it had sold to an undisclosed client.

Former SEC attorney Gary Aguirre says that while aggressively pursuing Pequote Capital and its alleged involvement in an insider trading case in 2005, he was fired when he tried to interview Morgan Stanley Chief Executive John Mack. Aguirre claims that the SEC is too closely associated with the industry it regulates.

Earlier this month, securities regulators in Massachusetts filed a civil fraud lawsuit against Merrill Lynch over $14 million in CDOs that the firm sold to the town of Springfield. Regulators say they were unsuitable for and sold without the town’s permission. Merrill has admitted to the town’s lack of consent and paid its investment back in full—although it now has little value.

The Federal Bureau of Investigation says it is conducting criminal investigations into 14 firms regarding their involvement in mortgage securitization activities.

Morgan Stanley, Merrill Lynch, Bear Stearns, and Goldman Sachs all admit that different regulators have asked them about their handling of subprime mortgage securities.

If you are an investor who has lost money because of the misconduct or negligence of someone in the securities industry, please contact Shepherd Smith and Edwards today. Your first consultation with one of our stockbroker fraud lawyers is free.

Related Web Resources:

SEC

Collateralized Debt Obligation (CDO), Investopedia

Subprime Mortgage, Investopedia

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Posted In: Bear Stearns , Collateral Debt Obligation , Goldman Sachs , Morgan Stanley , SEC , Subprime Mortgage

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January 10, 2008

Ex-Goldman Sachs Associate Will Serve Nearly Five Years in Prison for Insider Trading

Eugene M. Plotkin, a former Goldman Sachs associate, will serve 57 months in prison for his involvement in insider trading. Plotkin pleaded guilty to conspiracy and eight counts of insider trading for his role in a number of insider trading scams that generated over $6 million in illegal gains.

The former fixed-income research associate to will have to forfeit $6.7 million and pay a $10,000 fine. The forfeiture will come from money that the government has already frozen.

Plotkin, along with ex-Goldman analyst David Pajcin, was one of the key players accused of illegally trading stocks after consulting prepublished copies of BusinessWeek’s “Inside Wall Street” column. The scam also involved the use of information leaked by Jason Smith, a grand juror in the Bristol-Myers Squib Co. case and information provided by Stanislav Shpigelman, a former Merrill Lynch investment-banking analyst.

The men used info about Merrill Lynch’s upcoming acquisitions and mergers, including the Adidas acquisition of Reebok and the Proctor & Gamble acquisition of Gillette Co. to make illegal trades.

Plotkin and Pajcin also recruited two Wisconsin printing plant workers and had them steal the advance BusinessWeek copies so they could look up the names of stocks.

A number of the improper trades were made on behalf of Pajkin’s aunt, a retired Croatian seamstress.

Pajcin, Shpigelman, and the two ex-printing plant workers have also pleaded to criminal charges in this case.

If you are an investor who has lost money at the hands of analysts who engaged in insider trading, or anyone else who engaged in any other type of investment-related misconduct, please contact Shepherd Smith and Edwards today and ask for your free consultation. Our law firm is dedicated to helping people like you recover your losses.

Related Web Resources:

Ex-Goldman Analyst Gets Prison in Insider Trading Case, Reuters, January 4, 2008

Goldman Ex-Analyst Gets 4 Years in Insider Schemes, Wall Street Journal, January 4, 2008

Ex-Goldman associate sentenced to 57 months in insider case, Marketwatch.com, January 3, 2008

Insider Trading, SEC.gov

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December 26, 2007

Goldman Sachs Class Securities Fraud Lawsuit is Dismissed

A class securities fraud lawsuit against Goldman Sachs & Co. was dismissed by the U.S. District Court for the Southern District of New York. The lawsuit had charged that a Goldman Sachs & Co. senior analyst issued false research reports with inflated projections of Exodus Communications Inc.'s financial growth on more than one occasion.

Judge Thomas Griesa granted the motion to dismiss after deciding that the second amendment complaint "fails to adequately plead loss causation." The court dismissed the original lawsuit filed by Exodus investors based on the same grounds.

The Allegations:

Goldman Vice President of Investment Research and Senior Technology Analyst Matthew Janiga was the analyst appointed by Goldman Sachs to cover Exodus because he was known for letting investment bankers influence his published opinions. Janiga put Exodus on the “recommended list” in January 11, 2001. Just one day prior, Exodus closed a $1.9 billion acquisition. Goldman Sachs served as the strategic adviser on the deal.

On January 24, Exodus’s stock dropped dramatically during after-hours trading. Investment bankers from Goldman Sachs allegedly were working on Exodus’s debt and equity offerings scheduled to launch in February. On the first day of the class period, and to avoid any adverse effects, Janiga allegedly published a note that reemphasized and defended his recommended list rating.

According to the plaintiffs, Janiga repeated this alleged ‘cycle of deception’ for the entire class period—predicting in its reports that Exodus would rebound from its weak beginning in 2001 during the second quarter. Janiga reportedly made specific numerical projections indicating this recovery.

Janiga finally began to publish reports about its doubts regarding Exodus’s performance between June 14- 21. Exodus filed for bankruptcy in September.

The court granted the defendant’s motion to dismiss. It said that although the fraud on the market theory is applicable to cases involving analyst reports, the plaintiffs failed to properly allege lost causation and the complaint must therefore be dismissed.

As a victim of securities fraud, you must speak with an experience securities fraud attorney who can help you. Shepherd Smith and Edwards has successfully represented clients throughout the U.S. Contact Shepherd Smith and Edwards today.

Related Web Resources:

Goldman Sachs & Co. : Exodus Communications, Inc., Stanford Law School

Goldman Sachs

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December 19, 2007

Ronin Capital, Goldman Sachs Execution & Clearing, Penn Mott Securities, and Pearson Capital Management Receive Censures and Fines from NYSE Regulation

New York Stock Regulation Inc. announced its enforcement actions against four trading companies. The regulator says that Ronin Capital, LLC mismarked over 8,300 short orders because of inadequate supervisory procedures and supervision. The company continued to mismark short orders even after the SEC brought the violation to its attention. Ronin Capital was censured by NYSE Arca and ordered to pay $200,000.

NYSE Arca fined Goldman Sachs Execution & Clearing LP (GSEC) $105,000 for failing to adequately supervise business operators and associated persons in a way that guaranteed compliance with odd lot trading order rules.

Pearson Capital Management LLC was censured and fined $5,000 because it failed to meet market maker requirements. Penn Mott Securities was fined $3,200 for similar violations.

NYSE Regulation also announced enforcement action against three people:

*Former UBS Financial Services Inc. Vice President Montague Hasie is permanently barred from the exchange because he refused to testify about events that took place while he was at UBS. Hasie and some of his clients were indicted in a U.S. district court for allegedly misusing shares.

*Former Wedbush Morgan Securities registered representative Matthew Pavich was temporarily barred because of books and records violations.

*Former UBS Financial Services Inc. employee Richard Wendell Babichy is barred for 12 months for failing to report a customer complaint, failing to follow a customer’s instructions, and making or causing to make false entries in his employer’s records and books.

If you have lost money because of the reckless or negligent actions of a stockbroker or anyone else in the securities industry, you have the right to get your investment back. The stockbroker fraud law firm of Shepherd Smith and Edwards can help you. Contact us today for your free consultation.

Related Web Resources:

NYSE Regulation

Ronin Capital LLC

Goldman Sachs Execution & Clearing LP

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Posted In: Goldman Sachs , Pearson Capital Management , Penn Mott Securities , Wedbush Morgan

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October 9, 2007

Citigroup, Lehman Brothers, DeutscheBank and other Firms Fined for Failing to Deliver Trade Confirmations.

NYSE Regulation fined 14 of its member firms a total of $10.4 million in fines for failing to deliver trade confirmations to their clients and other violations.

Citigroup Global Markets received the heaviest fine of $2.25 million for failing to deliver trade confirmation documents in more than a million consumer transactions. Lehman Brothers and DeutscheBank were each fined $1.25 million.

Other firms sanctioned included UBS Securities; Bear Stearns & Co.; Credit Suisse Securities (USA) LLC ; Banc of America Securities LLC; Goldman Sachs & Co.; JP Morgan Securities; Wachovia Capital Markets LLC; and Keefe, Bruyette & Woods Inc. Fines levied against these firms ranged from $375,000 to $800,000.

According to the New York Stock Exchange (NYSE) enforcement wing, the violations occurred between July 1, 2003 and Oct 31, 2004. These include failures to ensure delivery of prospectuses to customers who purchased securities and mutual funds, failure to deliver product descriptions to customers purchasing exchange traded funds and failure to establish and maintain appropriate supervisory procedures regarding such activities.

Each of the member firms also agreed to certify that its current policies and procedures are reasonably designed to ensure compliance with current federal securities laws and regulations regarding such requirements. This action was one of the final acts by the regulatory staff of the NYSE prior joining the Financial Industry Regulatory Authority (FINRA) which has taken over all former NASD and NYSE regulatory responsibilities.

Shepherd Smith and Edwards represents investors nationwide in claims against securities firms. We have represented investors in more than 1,000 securities cases. To learn whether we may be able to assist you with a claim contact us to arrange a free consultation with one of our attorneys.

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Posted In: Bank of America , Bear Stearns , Citigroup , Credit Suisse , Deutsche Bank , Goldman Sachs , J P Morgan - Chase , Stockbroker Regulation , UBS , Wachovia

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September 26, 2007

Ex-Goldman Sachs & Co. Employee Pleads Guilty To Operating Multi-Million Dollar Insider Trading Scheme

Former Goldman Sachs & Co. Associate Eugene Plotnik has pled guilty to conspiracy to commit securities fraud, in addition to eight counts of insider trading. The charges carry a maximum of 165 years in prison.

Plotnik had been charged with running a “multi-faceted,” multi-million dollar scam that used inside information from at least three sources to conduct trading. The sources included a Merrill Lynch analyst, a federal grand juror, and two printing press employees that stole advance copies of a business publication with nonpublic information.

As part of his plea agreement, however, Plotnik promised that he would not appeal a lighter sentence ranging from 4 years and 9 months to 5 years and 11 months in prison. He also agreed to repay the money. More than $6.7 million acquired from the scheme is in illegal gains. Federal authorities have already frozen bank accounts to secure most of the funds.

According to prosecutors, the defendants in this operation at one point considered using strippers to persuade investment bankers that had insider information about upcoming acquisitions and murders to reveal stock tips. They also used the names of an exotic dancer and relatives to front accounts. The SEC has charged 13 people for their involvement in the scam.

Federal authorities began an investigation in 2005 when they noticed irregular trading activities right before Adidas bought Reebok. They became suspicious after a 63-year-old retired Croatian seamstress made several million dollars when she made call options before the deal. She turned out to be related to David Pajcin, the other Goldman Sachs employee accused of leading the scam. Pacjin and Plotnik traded in at least 25 stocks.

If you have lost money because members of the securities industry have chosen to commit securities fraud, you should contact Shepherd Smith and Edwards immediately. We help investors that are the victims of insider trading scams and other kinds of fraud schemes recoup their losses.

Contact Shepherd Smith and Edwards today.

Related Web Resources:

Ex-Goldman banker pleads guilty to insider trading, MarketWatch, August 28, 2007

Ex-Goldman Sachs Worker Pleads Guilty, ABC News, August 28, 2007

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Posted In: Goldman Sachs , Insider Trading

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June 21, 2007

Merrill Lynch Seizes $400 Million of Assets from a Bear Stearns Managed 'Subprime' Hedge Fund for Failing to Meet Margin Calls

A hedge fund managed by Bear Stearns that takes both bullish and bearish positions in subprime loans has been hit heavily by conditions in that market. Some of the fund's assets were held at Merrill Lynch, on margin. When the equity in the fund dropped, Merrill issued margin calls.

The hedge fund reportedly began with about $600 million in investor capital, $40 million of that from Bear Stearns and its executives, then borrowed $6 billion from Wall Street lenders, including Merrill, Goldman Sachs, Bank of America and Deutsche Bank.

As the fund's assets lost market value, the Bear Stearns managers scrambled to sell hundreds of millions of dollars in assets to satisfy demands for cash and assets from creditors to stave off liquidation of the fund. The managers auctioned almost $4 billion in mortgage bonds, and attempted to present a 30-day plan to sell more assets, but was unable to persuade Merrill to refrain from seizing assets.

An auction was then held by Merrill to liquidate these assets and the fund's fate remains in peril. It the hedge fund is dissolved it would become the second blowup of hedge funds dealing in the high risk home loans, known as "subprime" mortgages. UBS AG shut down Dillon Read Capital Management after bad trades in subprime-mortgage loans led to a $124 million loss.

Wall Street is concerned that the asset liquidations could cause values on other subprime pools to spiral downward causing additional pressure to liquidate other simliar portfolios. Sub-prime mortgages react to market conditions different than high-quality and liquid mortgage-backed bonds, and are more akin to "junk" corporate bonds in fluctuation and liquidity.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

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Posted In: Bank of America , Bear Stearns , Deutsche Bank , Goldman Sachs , Hedge Funds , Morgan Stanley

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May 14, 2007

Claims Against Goldman Sachs for Alleged Fannie Mae Fraud Must Be Filed Individually

The U.S. District Court for the District of Columbia dismissed class action claims against Goldman Sachs & Co. stemming from two Real Estate Mortgage Investment Conduit--or REMIC--deals with Fannie Mae.

Judge Richard Leon said that the plaintiffs--Fannie Mae investors–-failed plead a case which involved "direct acts" of securities fraud by Goldman. (In a court system friendly to those accused of securities fraud, claims are not allowed for aiding and abetting Federal Securities violations and class action claims involving securities fraud can no longer be filed under state laws.)

However, this court's decision does not prevent members of the former class action from now seeking their own claim against Goldman in court or arbitration. Clients of Goldman who purchased shares of Fannie Mae during this period would likely have the stronger claims. Such claims could include aiding and abetting, conspiracy and other claims under state laws which were not allowed in the class action. Fortunately, statutes of limitations on individual claims are usually preserved while a class action case is pending in court.

Federal National Mortgage Association (FNMA or "Fannie Mae") is a federally chartered government sponsored enterprise that provides funds for commercial and residential mortgages. Shares of FNMA trade on the stock exchange. The plaintiffs filed the class securities fraud suit on behalf of investors who purchased shares of Fannie Mae between April 17, 2001 and Sept. 27, 2005. In addition to Fannie Mae, the plaintiffs named three former senior executives; KPMG LLP, Fannie Mae's outside auditor during the class period; and Goldman, which designed and implemented two REMIC transactions in December 2001 and March 2002.

The plaintiffs asserted that Fannie Mae repeatedly violated generally accepted accounting principles, issued false financial statements, and made other actionable public disclosures, thereby " 'engag[ing] in one of the largest financial frauds in U.S. corporate history.'" The plaintiffs then contended that Goldman participated in a securities fraud because it proposed the two REMIC transactions; suggested that they could help Fannie Mae manage its income recognition for GAAP purposes, and performed unspecified functions as underwriter/dealer when the REMIC interests were offered to prospective purchasers of those interests.

The plaintiffs alleged that the two "unorthodox" REMIC transactions shifted $107 million of Fannie Mae's earnings into future years. The allegations stated that Goldman was willing to engage in these transactions because Fannie Mae was one of its largest trading clients, from which Goldman received millions of dollars in fees.

Shepherd Smith and Edwards represents investors nationwide who have been victims of investment fraud. If you have questions concerning claims, including those alleged in the above-described matter against Goldman Sachs, call for a free consultation at 1-800-259-9010 or contact Shepherd Smith and Edwards online.

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Posted In: Class Action Lawsuits , Goldman Sachs , Mortgage Backed Securities

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March 27, 2007

Goldman Sachs Affiliate Agrees To Pay $2 Million in Fines and Penalties Over Short-Sale Scheme Charges by NYSER and the SEC

NYSE Regulation Inc. and the Securities and Exchange Commission say that a clearing affiliate and prime broker of Goldman Sachs Group will pay $2 million in fines and penalties over its alleged role in an illegal short-sale trading scheme that was executed by Goldman Sachs customers through their accounts with the brokerage. Goldman Sachs Execution and Clearing, LP has not admitted to or denied any wrongdoing by agreeing to the censure. They are, however, agreeing to cease and desist from future violations.

The SEC charges that firm customers unlawfully sold securities short right before public offerings of the companies’ securities. It is accusing Goldman of violating the rules that mandate that brokers must mark sales short or long, while restricting stock loans on long sales. Both NYSER and SEC say that if Goldman had proper procedures in place, it would have discovered via its own records this illegal activity by its customers. Two Goldman customers have already settled SEC charges connected to their alleged participation in these activities.

SEC Chairman Christopher Cox told the U.S. Chamber of Commerce on the day of this announcement that the commission and its senior staff members are very concerned about abusive naked short-selling. He admitted that Regulation SHO had not properly addressed these issues and that the commission will now eliminate the regulation’s grandfather provision. Cox said that naked short-selling was connected to settlement and clearance systems and that the SEC would use technology to further deal with this issue. He said the action against Goldman was important.

The SEC says that customers used the firm’s REDI System (the automated trading system for broker dealers and their direct market-access) to make sell orders, which Goldman then executed as long sales. Customers, however, had sold the securities short and did not have the securities upon the settlement date. Goldman then delivered borrowed and proprietary securities to brokers so that the buyers could settle the customers “long sales.” Both NYSER and the SEC are in agreement that Goldman was unreasonable to rely on the customers’ representations that the offered securities belonged to them.

SEC Enforcement Director Linda Chatman Thomsen says that brokers are not allowed to ignore obvious discrepancies of illegal trading by its customers even though the latter now has direct market access platforms that let brokers execute bigger volumes of trade more efficiently and rapidly for customers. The SEC says that brokers are mandated to investigate a customer’s trading activities if significant disparities indicate that a customer may be lying to a broker about its representations.

NYSER Executive Vice President of Enforcement Susan Merrill says that blind reliance on customer representations that a sale is long when securities are being sold is not appropriate if a firm sees evidence of short selling.

The SEC says that since March 2000, patterns of trading by the customers and Goldman’s own records indicated that the customers were selling securities short and violating the 1934 Securities Exchange Act Rule 105 and Rule 10a-1(a). Goldman’s records, according to the SEC, also indicate that customers covered their short positions with securities they bought in follow-on and secondary offerings after the sales. The SEC says that Goldman could have noticed these trading disparities if they had the proper procedures in place to do so. NYSER says Goldman neglected to reasonably supervise its business activities.

Over the years, Shepherd Smith and Edwards has represented thousands of investors who have lost investments because of the inappropriate actions of stockbrokers and their firms. Contact Shepherd, Smith, and Edwards for your free consultation.

Stock Broker Fraud Blog

Published by Houston Securities Fraud Lawyers Shepherd Smith Edwards & Kantas

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Goldman Sachs, Merrill Lynch, Lehman Brothers, and Other Investment Firms Deal with Frozen Auction-Rate Securities

Goldman Sachs Settles Enron Fraud Lawsuit with University of California for $11.5 Million

Pondering the SEC’s Role in the Subprime Mortgage Crisis

Ex-Goldman Sachs Associate Will Serve Nearly Five Years in Prison for Insider Trading

Goldman Sachs Class Securities Fraud Lawsuit is Dismissed

Ronin Capital, Goldman Sachs Execution & Clearing, Penn Mott Securities, and Pearson Capital Management Receive Censures and Fines from NYSE Regulation

Citigroup, Lehman Brothers, DeutscheBank and other Firms Fined for Failing to Deliver Trade Confirmations.

Ex-Goldman Sachs & Co. Employee Pleads Guilty To Operating Multi-Million Dollar Insider Trading Scheme

Merrill Lynch Seizes $400 Million of Assets from a Bear Stearns Managed 'Subprime' Hedge Fund for Failing to Meet Margin Calls

Claims Against Goldman Sachs for Alleged Fannie Mae Fraud Must Be Filed Individually

Goldman Sachs Affiliate Agrees To Pay $2 Million in Fines and Penalties Over Short-Sale Scheme Charges by NYSER and the SEC

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